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Don’t underestimate the need for political support

Promoters of infrastructure projects worldwide have been looking worriedly at Australia in recent months. A row about a £5.5bn road scheme has been threatening to escalate into a major test of investor confidence in our sector.

This week we can report that a deal has been struck to assuage fears - for now - that Australian infrastructure projects are not worth the hassle of investing in.

What’s been going on? In a nutshell, politics. The Liberal Australian government - led by self-styled “infrastructure prime minister” Tony Abbott wanted to build the 18km long congestion-busting East-West Link highway across Melbourne. A private finance deal was developed and a contract awarded to a consortium including John Laing, Lend Lease and Bouygues (among others). All was well.

Then the state of Victoria elected Labor’s Daniel Andrews as its premier.

Melbourne east west link

Melbourne east-west link

Andrews was partly elected on a mandate to scrap the road - and scrap it he duly did, tearing up the PFI contract in the process and setting investor alarm bells ringing all over the world.

Let’s face it - who would ever waste their time working up a complex finance deal in Australia if the deal could be scrapped by any local politician gaining a bit of power? And what if other local politicians in our countries around the world took inspiration from Andrews’ lead? Deals everywhere could have been at threat.

Well, this week a deal - of sorts - has been struck. The road is still axed, and the contract still torn up. But the contracting consortium will now at least be paid its costs to date. Everyone seems satisfied with the deal - publicly at least.

But the consortium is not getting any compensation for all those extra, unquantifiable costs - the vast amount of time and effort put in by banks and their advisors, firmly in the expectation of a healthy profit to come.

So there’s still reason be concerned. As Abbott said before this week’s East-West link agreement was struck: “Australia can’t afford to discourage private investment in infrastructure because government alone cannot afford to build the infrastructure that our country needs.”

It’s no different here. Our much vaunted National Infrastructure Plan is heavily reliant on private finance. And it’s full of controversial schemes like the East-West link

Take High Speed 2. OK, there’s no private finance element there (or at least not yet) and so the investor confidence need is less.

But it’s a good example. The case is clearly not yet made in many people’s minds. As we report this week, there’s even someone standing for election on an anti-HS2 manifesto (and it’s not UKIP’s Nigel Farage).

It really hammers the point I made last week. We need to sell our schemes better - to all interested parties, whether they seem to have real influence or not. Far better to spend the time and effort up front then spend years fighting against concerted opposition.

That’s the challenge.

  • Mark Hansford is NCE’s editor

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